Grant Cardone: Follow These 5 Steps To Invest In Real Estate
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Peter Burns
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Molly Sullivan
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When it comes to growing your money, buying commercial real estate is a common strategy. However, for the average person, getting into the real estate industry can be quite intimidating. Grant Cardone, American businessman, financial influencer and author, took the time to break down his buying process in a recent YouTube video. Here are his five steps for buying commercial real estate.
Find the Property
When it comes to buying real estate, finding the right property is the biggest step. According to Cardone, this portion is about 80% of the work you need to put in. You’ll need to search through apps or use brokers to find the right property. However, in Cardone’s experience, using a broker often leads to better deals on commercial real estate.
When you find something of interest, Cardone suggested immediately calling the broker to learn more about the deal. This is an essential step as it allows you to get the broker’s take on the property and begin underwriting the deal.
Underwriting involves assessing and evaluating the risk and financials to determine if it’s a worthwhile investment. Underwriting allows you to understand the lowest and highest amounts you’d pay for the property as well as the return you’d get from making the deal. For example, while on a call, Cardone might find out how many units there are, what those units rent out for and the occupancy rate to figure out the estimated return and how much he could offer for it.
Get the Contract
When it’s time to figure out how you’ll pay for the property, Cardone has one big piece of advice: Don’t ever ask a bank to quote debt on a deal you don’t have. He explained they will give you a number, but it may not be realistic. Without a contract in place, lenders might provide overly optimistic terms that will skew your plan. Once you have the deal under contract, you can get the actual number and begin to plan accordingly.
It’s important to keep in mind that banks typically won’t lend the full value of the commercial real estate. Lenders use a loan-to-value (LTV) ratio to determine how much of a property they will fund. Depending on the property type, lenders usually have a range of LTV that they’re willing to fund. For example, multifamily properties may be able to get loans of up to 80% LTV, office buildings can range from 65% to 75% LTV, and retail properties may be between 65% and 75% LTV. Therefore, if the commercial property you have under contract is worth $1,000,000 and the bank offers 65% LTV, they’ll fund you $650,000 for the property.
Get the Cash
If the bank offers to loan you 65% of the real estate price, you can then look to get equity from other people to supplement your contributions and cover the remaining 35%. If you have the property under contract and the commitment from the bank, Cardone explained that it’s easier to interest others to get in on the action. At this point, you’ve secured the deal, and private investors can buy in to get a share of the property’s cash flow.
Once you’ve found enough investors, you’ll have your commercial real estate and can begin profiting on your transaction. However, even though this ends the purchase process, Cardone added two more essential steps that you shouldn’t overlook.
Expand the Network
The best way to find amazing deals before anyone else does is to constantly grow your network. One important tip that Cardone gave is to keep in touch with the brokers you contact about properties. If a deal doesn’t go through or you lose interest, letting the broker know you’re an interested buyer and calling them from time to time can help you find great commercial real estate opportunities you may otherwise miss.
Build the Confidence
Even though it’s an important part of real estate, confidence isn’t easy to come by. Some may try the old adage of “fake it until you make it.” However, Cordone sees a big problem with this approach as he believes everyone will know if you’re faking it in real estate.
To build up your confidence, you need to be active in looking for deals, speak with brokers and ask the right questions. The more information you have about a property, such as why it’s being sold at this particular time, what the seller’s expectation is and what they like about it, the more confident you’ll be as a buyer.
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